UK’s inadequate response to economic crime has allowed fraud and money laundering to thrive, say MPs | Thomson Reuters Regulatory watch and compliance learning

A ‘bewildering’ number of agencies, coupled with insufficient funding and a lack of urgency, has allowed financial fraud and money laundering to thrive in the UK. The government’s work on economic crime is ‘not enough, nor urgent enough, to stem the rise, let alone begin to contain it,’ an influential group of lawmakers said today.

Economic crime did not appear to be a government priority and the economic crime plan’s strategic council had only met three times since 2019, the Treasury’s special committee said in its report on economic crime. There were too many agencies chasing too little funding and operating in silos, hampering the UK’s ability to reduce financial crime, he said.

“Government needs to consider whether there should be a single law enforcement agency with clear responsibilities and objectives to tackle economic crime. Government needs to ensure that law enforcement agencies have the appropriate resources to deal with the scale of the problem,” the report said.

Comply with promised legislation

The Treasury Committee urged the government to keep its promises to pass the Economic Crimes Bill, the Business Chamber Reform Bill and the Foreign Entities Registration Bill, and to introduce legislative reform of corporate criminal liability first proposed in 2017. The government has shelved all these bills and proposals.

The government should assess whether its oversight of the economic crime plan has been effective and publish detailed progress reports outlining the steps taken, according to the report. Fraud has soared 32% since the plan was launched in 2019. The government has still been unable to quantify the scale of money laundering in the UK, despite it being a objective of the plan against economic crime. It’s also unclear what progress has been made on another goal, reforming the suspicious activity reporting (SAR) regime, according to the report.

Online scams

The Treasury committee has denounced the unedifying situation which sees technology companies, including Google and Facebook, taking advantage of both online advertisements placed by fraudsters and anti-fraud advertisements placed by the Financial Conduct Authority (FCA) in response to the growth of false advertisements. on their platforms. Last month, a letter from Nikhil Rathi, chief executive of the FCA, to the committee revealed that the tech companies had failed to reimburse the FCA for its advertising expenses. The committee had asked them to do so during and after a testimony session last year.

Rathi’s letter revealed that the FCA had spent £1.2m on scam prevention advertising with Google, Facebook and Twitter over the past three years.

“Online businesses should not take advantage of both paid advertising for financial products and warnings issued on their platforms by the FCA about such advertisements,” the committee said.

Online security bill

The report repeated the Treasury committee’s call for paid advertising to be added to the scope of the online safety bill. Banks, the FCA, police and consumer groups have also called for paid advertising to be included in the bill. In December, the Joint Committee for the Online Safety Bill also proposed adding paid advertising to the bill.

He then advocated for tough penalties against online tech companies. The joint committee said that if tech companies’ algorithms allow individuals to be targeted by fraudulent ads, they should be required to change them. They called on every tech company to appoint a senior executive responsible for preventing harm.

Tech companies that fail to prevent such ads would face fines of up to 10% of their annual revenue, and individuals would be held criminally liable. It would also be possible to pursue civil lawsuits for damages caused by fraudulent products accessed through fraudulent advertisements on their social networks, the joint committee said.

Push payment fraud

The Treasury committee said the government should “urgently legislate” to impose compulsory repayment in the event of push payment fraud. Much push payment fraud exploits deficiencies in account verification systems within and between banks.

Push payment fraud increased by 71% in the first six months of 2021, reaching £355m, according to banking trade lobby UK Finance.

“Improving data sharing between banks is one of the measures that the payment systems regulator is implementing as part of its reform of the conditional repayment model code. The Treasury should be ready to introduce any necessary legislation to enable this, and the PSR should ensure that banks act quickly to put in place the necessary changes,” the commission said in the report.

SAR milestones needed

Three years on from the 2018 Financial Action Task Force (FATF) Mutual Evaluation Report for the UK, which recommended more work on “areas of weakness, such as monitoring, reporting and investigating suspicious transactions”, the Treasury committee does not know what progress has been made.

“It is unclear exactly what the SAR reform program has achieved so far, what remains to be done and when it will end. The Home Office does not appear to have released detailed information on what the program does or what steps have been taken for it,” the committee’s report states.

The problems with the SAR regime are well known, Duncan Tessier, the Home Office’s new director for economic crime, told the Treasury committee in November. It is replacing 20-year-old IT systems, revising scheme-related legislation and regulations, and hiring more staff for the UK’s Financial Intelligence Unit.

The committee expressed disappointment with the lack of progress on DAS reform and asked for a timeline indicating when milestones were to be reached, as well as an annual progress report.

The committee took up a recommendation from Graeme Biggar, director of the National Economic Crime Center, asking banks to submit more SARs even if the legal test for suspicion is not met.

Economic criminality Insufficient sampling

The report highlighted the lack of funding available for law enforcement and other agencies tasked with fighting economic crime, given the scale of the problem.

A breakdown of economic crime funding allocated to the Home Office and the amount that reaches crime agencies should be provided, according to the report. Finally, funding should not rely solely on the economic crime tax that will be introduced in 2023.

“We welcome the design of the levy…However, anti-money laundering expenditures should be matched to need and should not be limited by levy performance alone,” the report states.

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